A Reference Library for Customs, Excise, Goods & Services Tax Officers and Tax Payers

GOODS AND SERVICES TAX (GST)

I. Frequently Asked Questions (FAQ)

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1.  Assessment and Audit
Q: Who is the person responsible to make assessment of taxes payable under the Act?

A: Every person registered under the Act shall himself assess the tax payable by him for a tax period and after such assessment he shall file the return required under section 39.
2.  Assessment and Audit
Q: When can a taxable person pay tax on a provisional basis?

A: As a taxpayer has to pay tax on self-assessment basis, a request for paying tax on provisional basis has to come from the taxpayer which will then have to be permitted by the proper officer. In other words, no tax officer can suo moto order payment of tax on provisional basis. This is governed by section 60 of CGST/SGST Act. Tax can be paid on a provisional basis only after the proper officer has permitted it through an order passed by him. For this purpose, the taxable person has to make a written request to the proper officer, giving reasons for payment of tax on a provisional basis. Such a request can be made by the taxable person only in such cases where he is unable to determine :
(a) the value of goods or services to be supplied by him, or
(b) determine the tax rate applicable to the goods or services to be supplied by him.
In such cases the taxable person has to execute a bond in the prescribed form, and with such surety or security as the proper officer may deem fit.
3.  Assessment and Audit
Q: What is the latest time by which final assessment is required to be made?

A: The final assessment order has to be passed by the proper officer within six months from the date of the communication of the order of provisional assessment. However, on sufficient cause being shown and for reasons to be recorded in writing, the above period of six months may be extended :
(a) by the Joint/Additional Commissioner for a further period not exceeding six months, and
(b) by the Commissioner for such further period as he may deem fit not exceeding fours.
Thus, a provisional assessment can remain provisional for a maximum of five years.
4.  Assessment and Audit
Q: Where the tax liability as per the final assessment is higher than in provisional assessment, will the taxable person be liable to pay interest?

A: Yes. He will be liable to pay interest from the date the tax was due to be paid originally till the date of actual payment.
5.  Assessment and Audit
Q: What recourse may be taken by the officer in case proper explanation is not furnished for the discrepancy detected in the return filed, while conducting scrutiny under section 61 of CGST ACT?

A: If the taxable person does not provide a satisfactory explanation within 30 days of being informed (extendable by the officer concerned) or after accepting discrepancies, fails to take corrective action in the return for the month in which the discrepancy is accepted, the Proper Officer may take recourse to any of the following provisions :
(a) Proceed to conduct audit under Section 65 of the Act;
(b) Direct the conduct of a special audit under Section 66 which is to be conducted by a Chartered Accountant or a Cost Accountant nominated for this purpose by the Commissioner; or
(c) Undertake procedures of inspection, search and seizure under Section 67 of the Act; or
(d) Initiate proceeding for determination of tax and other dues under Section 73 or 74 of the Act.
6.  Assessment and Audit
Q: If a taxable person fails to file the return required under law (under section 39 (monthly/quarterly), or 45 (final return), what legal recourse is available to the tax officer?

A: The proper officer has to first issue a notice to the defaulting taxable person under section 46 of CGST/SGST Act requiring him to furnish the return within a period of fifteen days. If the taxable person fails to file return within the given time, the proper officer shall proceed to assess the tax liability of the return defaulter to the best of his judgement taking into account all the relevant material available with him. (Section 62).
7.  Assessment and Audit
Q: Under what circumstances can a best judgment assessment order issued under section 60 be withdrawn?

A: The best judgment order passed by the Proper Officer under section 62 of CGST/SGST Act shall automatically stand withdrawn if the taxable person furnishes a valid return for the default period (i.e. files the return and pays the tax as assessed by him), within thirty days of the receipt of the best judgment assessment order.
8.  Assessment and Audit
Q: What is the time limit for passing assessment order u/s 62 (Best Judgment) and 63 (Non-filers)?

A: The time limit for passing an assessment order under section 62 or 63 is five years from the due date for furnishing the annual return.
9.  Assessment and Audit
Q: What is the legal recourse available in respect of a person who is liable to pay tax but has failed to obtain registration?

A: Section 63 of CGST/SGST Act provides that in such a case, the proper officer can assess the tax liability and pass an order to his best judgment for the relevant tax periods. However, such an order must be passed within a period of five years from the due date for furnishing the annual return for the financial year to which non-payment of tax relates.
10.  Assessment and Audit
Q: Under what circumstances can a tax officer initiate Summary Assessment?

A: As per section 64 of CGST/SGST Act, Summary Assessments can be initiated to protect the interest of revenue when :
(a) the proper officer has evidence that a taxable person has incurred a liability to pay tax under the Act, and
(b) the proper officer believes that delay in passing an assessment order will adversely affect the interest of revenue.
Such order can be passed after seeking permission from the Additional Commissioner/Joint Commissioner.
11.  Assessment and Audit
Q: Other than appellate remedy, is there any other recourse available to the taxpayer against a summary assessment order?

A: A taxable person against whom a summary assessment order has been passed can apply for its withdrawal to the jurisdictional Additional/Joint Commissioner within thirty days of the date of receipt of the order. If the said officer finds the order erroneous, he can withdraw it and direct the proper officer to carry out determination of tax liability in terms of section 73 or 74 of CGST/SGST Act. The Additional/Joint Commissioner can follow a similar course of action on his own motion if he finds the summary assessment order to be erroneous (section 64 of CGST/SGST Act).
12.  Assessment and Audit
Q: Is summary assessment order to be necessarily passed against the taxable person?

A: No. In certain cases, like when goods are under transportation or are stored in a warehouse, and the taxable person in respect of such goods cannot be ascertained, the person in charge of such goods shall be deemed to be the taxable person and will be assessed to tax (proviso to Section 64 of CGST/SGST Act).
13.  Assessment and Audit
Q: Who can conduct audit of taxpayers?

A: There are three types of audit prescribed in the GST Act(s) as explained below :
(a) Audit by Chartered Accountant or a Cost Accountant : Every registered person whose turnover exceeds the prescribed limit, shall get his accounts audited by a chartered accountant or a cost accountant. (Section 35(5) of the CGST/SGST Act)
(b) Audit by Department : The Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered person. The frequency and manner of audit will be prescribed in due course. (Section 65 of the CGST/SGST Act)
(c) Special Audit : If at any stage of scrutiny, inquiry, investigations or any other proceedings, if department is of the opinion that the value has not been correctly declared or credit availed is not with in the normal limits, department may order special audit by chartered accountant or cost accountant, nominated by department. (Section 66 of the CGST/SGST Act).
14.  Assessment and Audit
Q: Whether any prior intimation is required before conducting the audit?

A: Yes, prior intimation is required and the taxable person should be informed at least 15 working days prior to conduct of audit.
15.  Assessment and Audit
Q: What is the period within which the audit is to be completed?

A: The audit is required to be completed within 3 months from the date of commencement of audit. The period is extendable for a further period of a maximum of 6 months by the Commissioner.
16.  Assessment and Audit
Q: What is meant by commencement of audit?

A: The term ‘commencement of audit’ is important because audit has to be completed within a given time frame in reference to this date of commencement. Commencement of audit means the later of the following :
(a) the date on which the records/accounts called for by the audit authorities are made available to them, or
(b) the actual institution of audit at the place of business of the taxpayer.
17.  Assessment and Audit
Q: What are the obligations of the taxable person when he receives the notice of audit?

A: The taxable person is required to :
(a) facilitate the verification of accounts/records available or requisitioned by the authorities,
(b) provide such information as the authorities may require for the conduct of the audit, and
(c) render assistance for timely completion of the audit.
18.  Assessment and Audit
Q: What would be the action by the proper officer upon conclusion of the audit?

A: The proper officer shall, on conclusion of audit, within 30 days inform the taxable person about his findings, reasons for findings and the taxable person’s rights and obligations in respect of such findings.
19.  Assessment and Audit
Q: Under what circumstances can a special audit be instituted?

A: A special audit can be instituted in limited circumstances where during scrutiny, investigation, etc. it comes to the notice that a case is complex or the revenue stake is high. This power is given in section 66 of CGST/SGST Act.
20.  Assessment and Audit
Q: Who can serve the notice of communication for special audit?

A: The Assistant/Deputy Commissioner is to serve the communication for special audit only after prior approval of the Commissioner.
21.  Assessment and Audit
Q: Who will do the special audit?

A: A Chartered Accountant or a Cost Accountant so nominated by the Commissioner may undertake the audit.
22.  Assessment and Audit
Q: What is the time limit to submit the audit report?

A: The auditor will have to submit the report within 90 days or within the further extended period of 90 days.
23.  Assessment and Audit
Q: Who will bear the cost of special audit?

A: The expenses for examination and audit including the remuneration payable to the auditor will be determined and borne by the Commissioner.
24.  Assessment and Audit
Q: What action the tax authorities may take after the special audit?

A: Based on the findings/observations of the special audit, action can be initiated under Section 73 or Section 74 of the CGST/SGST Act.
25.  Appeals, Review and Revision in GST
Q: Whether any person aggrieved by any order or decision passed against him has the right to appeal?

A: Yes. Any person aggrieved by any order or decision passed under the GST Act(s) has the right to appeal under Section 107. It must be an order or decision passed by an “adjudicating authority”.
However, some decisions or orders (as provided for in Section 121) are not appealable.
26.  Appeals, Review and Revision in GST
Q: What is the time limit to file appeal to Appellate Authority (AA)?

A: For the aggrieved person, the time limit is fixed as 3 months from the date of communication of order or decision. For the department (Revenue), the time limit is 6 months within which review proceedings have to be completed and appeal filed before the AA.
27.  Appeals, Review and Revision in GST
Q: Whether the appellate authority has any powers to condone the delay in filing appeal?

A: Yes. He can condone a delay of up to one month from the end of the prescribed period of 3/6 months for filing the appeal (3+1/6+1), provided there is “sufficient cause” as laid down in the section 107(4).
28.  Appeals, Review and Revision in GST
Q: Whether the appellate authority has any powers to allow additional grounds not specified in the appeal memo?

A: Yes. He has the powers to allow additional grounds if he is satisfied that the omission was not wilful or unreasonable.
29.  Appeals, Review and Revision in GST
Q: The order passed by Appellate Authority has to be communicated to whom?

A: Appellate Authority has to communicate the copy of order to the appellant, respondent and the adjudicating authority with a copy to jurisdictional Commissioner of CGST and SGST/UTGST.
30.  Appeals, Review and Revision in GST
Q: What is the amount of mandatory pre-deposit which should be made along with every appeal before Appellate Authority?

A: Full amount of tax, interest, fine, fee and penalty arising from the impugned order as is admitted by the appellant and a sum equal to 10% of remaining amount of tax in dispute arising from the order in relation to which appeal has been filed.
31.  Appeals, Review and Revision in GST
Q: Can the Department apply to AA for ordering a higher amount of pre-deposit?

A: No
32.  Appeals, Review and Revision in GST
Q: What about the recovery of the balance amount?

A: On making the payment of pre-deposit as above, the recovery of the balance amount shall be deemed to be stayed, in terms of section 107(7).
33.  Appeals, Review and Revision in GST
Q: Whether in an appeal the AA can pass an order enhancing the quantum of duty/fine/penalty/reduce the amount of refund/ITC from the one passed by the original authority?

A: The AA is empowered to pass an order enhancing the fees or penalty or fine in lieu of confiscation or reducing the amount of refund or input tax credit provided the appellant has been given reasonable opportunity of showing cause against the proposed detrimental order. [First Proviso to Section 107(11)].
Insofar as the question of enhancing the duty or deciding wrong availment of ITC is concerned, the AA can do so only after giving specific SCN to the appellant against the proposed order and the order itself should be passed within the time limit specified under Section 73 or Section 74. [Second Proviso to Section 107(11)].
34.  Appeals, Review and Revision in GST
Q: Does the AA have the power to remand the case back to the adjudicating authority for whatever reasons?

A: No. Section 107(11) specifically states that the AA shall, after making such inquiry as may be necessary, pass such order, as he thinks just and proper, confirming, modifying or annulling the decision or order appealed against, but shall not refer the case back to the authority that passed the decision or order.
35.  Appeals, Review and Revision in GST
Q: Can any CGST/SGST authority revise any order passed under the Act by his subordinates?

A: Section 2(99) of the Act defines “Revisional Authority” as an authority appointed or authorised under this Act for revision of decision or orders referred to in section 108. Section 108 of the Act authorizes such “revisional authority” to call for and examine any order passed by his subordinates and in case he considers the order of the lower authority to be erroneous in so far as it is prejudicial to revenue and is illegal or improper or has not taken into account certain material facts, whether available at the time of issuance of the said order or not or in consequence of an observation by the Comptroller and Auditor General of India, he may, if necessary, he can revise the order after giving opportunity of being heard to the noticee.
36.  Appeals, Review and Revision in GST
Q: Can the “revisional authority” order for staying of operation of any order passed by his subordinates pending such revision?

A: Yes.
37.  Appeals, Review and Revision in GST
Q: Are there any fetters to the powers of “revisional authority” under GST to revise orders of subordinates?

A: Yes. The “revisional authority” shall not revise any order if
(a) the order has been subject to an appeal under section 107 or under section 112 or under section 117 or under section 118; or
(b) the period specified under section 107(2) has not yet expired or more than three years have expired after the passing of the decision or order sought to be revised.
(c) the order has already been taken up for revision under this Section at any earlier stage.
38.  Appeals, Review and Revision in GST
Q: When the Tribunal is having powers to refuse to admit the appeal?

A: In cases where the appeal involves -
• tax amount or input tax credit or
• the difference in tax or the difference in input tax credit involved or
• amount of fine, fees or amount of penalty determined by such order,
does not exceed Rs. 50,000/-, the Tribunal has discretion to refuse to admit such appeal. [Section 112(2) of the Act].
39.  Appeals, Review and Revision in GST
Q: What is the time limit within which appeal has to be filed before the Tribunal?

A: The aggrieved person has to file appeal before Tribunal within 3 months from the date of receipt of the order appealed against. Department has to complete review proceedings and file appeal within a period of six months from the date of passing the order under revision.
40.  Appeals, Review and Revision in GST
Q: Can the Tribunal condone delay in filing appeal before it beyond the period of 3/6 months? If so, till what time?

A: Yes, the Tribunal has powers to condone delay of a further three months, beyond the period of 3/6 months provided sufficient cause is shown by the appellant for such delay.
41.  Appeals, Review and Revision in GST
Q: What is the time limit for filing memorandum of cross objections before Tribunal?

A: 45 days from the date of receipt of appeal.
42.  Appeals, Review and Revision in GST
Q: Whether interest becomes payable on refund of pre-deposit amount?

A: Yes. As per Section 115 of the Act, where an amount deposited by the appellant under sub-section (6) of section 107 or under sub-section (8) of section 112 is required to be refunded consequent to any order of the Appellate Authority or of the Appellate Tribunal, as the case may be, interest at the rate specified under section 56 shall be payable in respect of such refund from the date of payment of the amount till the date of refund of such amount.
43.  Appeals, Review and Revision in GST
Q: An appeal from the order of Tribunal lies to which forum?

A: Appeal against orders passed by the State Bench or Area Benches of the Tribunal lies to the High Court if the High Court is satisfied that such an appeal involves a substantial question of law. [Section 117(1)]. However, appeal against orders passed by the National Bench or Regional Benches of the Tribunal lies to the Supreme Court and not High Court. [Under section 109(5) of the Act, only the National Bench or Regional Benches of the Tribunal can decide appeals where one of the issues involved relates to the place of supply.]
44.  Appeals, Review and Revision in GST
Q: What is the time limit for filing an appeal before the High Court?

A: 180 days from the date of receipt of the order appealed against. However, the High Court has the power to condone further delay on sufficient cause being shown.
45.  Advance Ruling
Q: What is the meaning of Advance Ruling?

A: As per section 95 of CGST/SGST Law and section 12 of UTGST law, ‘advance ruling’ means a decision provided by the authority or the Appellate Authority to an applicant on matters or on questions specified in section 97(2) or 100(1) of CGST/SGST Act as the case may be, in relation to the supply of goods and/or services proposed to be undertaken or being undertaken by the applicant.
46.  Advance Ruling
Q: Which are the questions for which advance ruling can be sought?

A: Advance Ruling can be sought for the following questions :
(a) classification of any goods or services or both;
(b) applicability of a notification issued under provisions of the GST Act(s);
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services under the Act;
(f) whether applicant is required to be registered under the Act;
(g) whether any particular thing done by the applicant with respect to any goods or services amounts to or results in a supply of goods or services, within the meaning of that term.
47.  Advance Ruling
Q: What is the objective of having a mechanism of Advance Ruling?

A: The broad objective for setting up such an authority is to :
i. provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant;
ii. attract Foreign Direct Investment (FDI);
iii. reduce litigation;
iv. pronounce ruling expeditiously in transparent and inexpensive manner.
48.  Advance Ruling
Q: What will be the composition of Authority for advance rulings (AAR) under GST?

A: ‘Authority for advance ruling’ (AAR) shall comprise one member CGST and one member SGST/UTGST. They will be appointed by the Central and State government respectively.
49.  Advance Ruling
Q: Is it necessary for a person seeking advance ruling to be registered?

A: No, any person registered under the GST Act(s) or desirous of obtaining registration can be an applicant. [Section 95(b)]
50.  Advance Ruling
Q: At what time an application for advance ruling be made?

A: An applicant can apply for advance ruling even before taking up a transaction (proposed supply of goods or services) or in respect of a supply which is being undertaken. The only restriction is that the question being raised is already not pending or decided in any proceedings in the case of applicant.
51.  Advance Ruling
Q: In how much time will the Authority for Advance Rulings have to pronounce its ruling?

A: As per Section 98(6) of CGST/SGST Act, the Authority shall pronounce its ruling in writing within ninety days from the date of receipt of application.
52.  Advance Ruling
Q: What is the Appellate authority for advance ruling (AAAR)?

A: Appellate authority for advance ruling (AAAR), shall be constituted under the SGST Act or UTGST Act and such AAAR shall be deemed to be the Appellate Authority under the CGST Act in respect of the respective state or Union Territory. An applicant, or the jurisdictional officer, if aggrieved by any advance ruling, may appeal to the Appellate Authority.
53.  Advance Ruling
Q: How many AAR and AAAR will be constituted under GST?

A: There will be one AAR and AAAR for each State.
54.  Advance Ruling
Q: To whom will the Advance Ruling be applicable?

A: Section 103 provides that an advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who sought it in respect of any matter referred to in 97(2) and on the jurisdictional tax authority of the applicant. This clearly means that an advance ruling is not applicable to similarly placed taxable persons in the State. It is only limited to the person who has applied for an advance ruling.
55.  Advance Ruling
Q: Whether the advance ruling have precedent value of a judgment of the High Court or the Supreme Court?

A: No, the advance ruling is binding only in respect of the matter referred. It has no precedent value. However, even for persons other than applicant, it does have persuasive value.
56.  Advance Ruling
Q: What is the time period for applicability of Advance Ruling?

A: The law does not provide for a fixed time period for which the ruling shall apply. Instead, in section 103(2), it is provided that advance ruling shall be binding till the period when the law, facts or circumstances supporting the original advance ruling have changed. Thus, a ruling shall continue to be in force so long as the transaction continues and so long as there is no change in law, facts or circumstances.
57.  Advance Ruling
Q: Can an advance ruling given be nullified?

A: Section 104(1) provides that an advance ruling shall be held to be ab initio void if the AAR or AAAR finds that the advance ruling was obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts. In such a situation, all the provisions of the GST Act(s) shall apply to the applicant as if such advance ruling had never been made (but excluding the period when advance ruling was given and up to the period when the order declaring it to be void is issued). An order declaring advance ruling to be void can be passed only after hearing the applicant.
58.  Advance Ruling
Q: What is the procedure for obtaining Advance Ruling?

A: Sections 97 and 98 deals with procedure for obtaining advance ruling. Section 97 provides that the applicant desirous of obtaining advance ruling should make application to AAR in a prescribed form and manner. The format of the form and the detailed procedure for making application will be prescribed in the Rules.
Section 98 provides the procedure for dealing with the application for advance ruling. The AAR shall send a copy of application to the officer in whose jurisdiction the applicant falls and call for all relevant records. The AAR may then examine the application along with the records and may also hear the applicant. Thereafter AAR will pass an order either admitting or rejecting the application.
59.  Advance Ruling
Q: Under what circumstances will the application for Advance Ruling be compulsorily rejected?

A: Application has to be rejected if the question raised in the application is already pending or decided in any proceedings in the case of applicant under any of the provisions of GST Act(s)
If the application is rejected, it should be by way of a speaking order giving the reasons for rejection.
60.  Advance Ruling
Q: What is the procedure to be followed by AAR once the application is admitted?

A: If the application is admitted, the AAR shall pronounce its ruling within ninety days of receipt of application. Before giving its ruling, it shall examine the application and any further material furnished by the applicant or by the concerned departmental officer.
Before giving the ruling, AAR must hear the applicant or his authorized representative as well as the jurisdictional officers of CGST/SGST/UTGST.
61.  Advance Ruling
Q: What happens if there is a difference of opinion amongst members of AAR?

A: If there is difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the AAAR for hearing the issue. If the members of AAAR are also unable to come to a common conclusion in regard to the point(s) referred to them by AAR, then it shall be deemed that no advance ruling can be given in respect of the question on which difference persists at the level of AAAR.
62.  Advance Ruling
Q: What are the provisions for appeals against order of AAR?

A: The provisions of appeal before AAAR are dealt in sections 100 and 101 of CGST/SGST Act or section 14 of the UTGST Act.
If the applicant is aggrieved with the finding of the AAR, he can file an appeal with AAAR. Similarly, if the concerned or jurisdictional officer of CGST/SGST/UTGST does not agree with the finding of AAR, he can also file an appeal with AAAR. The word concerned officer of CGST/SGST means an officer who has been designated by the CGST/SGST administration in regard to an application for advance ruling. In normal circumstances, the concerned officer will be the officer in whose jurisdiction the applicant is located. In such cases the concerned officer will be the jurisdictional CGST/SGST officer.
Any appeal must be filed within thirty days from the receipt of the advance ruling. The appeal has to be in prescribed form and has to be verified in prescribed manner. This will be prescribed in the Model GST Rules.
The Appellate Authority must pass an order after hearing the parties to the appeal within a period of ninety days of the filing of an appeal. If members of AAAR differ on any point referred to in appeal, it shall be deemed that no advance ruling is issued in respect of the question under appeal.
63.  Advance Ruling
Q: Whether Appeal can be filed before High Court or Supreme Court against the ruling of Appellate Authority for Advance Rulings?

A: The CGST/SGST Act do not provide for any appeal against the ruling of Appellate Authority for Advance Rulings. Thus no further appeals lie and the ruling shall be binding on the applicant as well as the jurisdictional officer in respect of applicant.
However, Writ Jurisdiction may lie before Hon’ble High Court or the Supreme Court.
64.  Advance Ruling
Q: Can the AAR & AAAR order for rectification of mistakes in the ruling?

A: Yes, AAR and AAAR have power to amend their order to rectify any mistake apparent from the record within a period of six months from the date of the order. Such mistake may be noticed by the authority on its own accord or may be brought to its notice by the applicant or the concerned or the jurisdictional CGST/SGST officer. If a rectification has the effect of enhancing the tax liability or reducing the quantum of input tax credit, the applicant or the appellant must be heard before the order is passed. (Section 102).
65.  Advance Ruling
Q: Settlement Commission [Omitted]

A: Omitted as the chapter is no longer there in the Final GST Act(s)

II. Frequently Asked Questions (FAQ) First Edition

Q 1: What is the justification of GST?

Ans: There was a burden of "tax on tax" in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The introduction of Central VAT (CENVAT) has removed the cascading burden of "tax on tax" to a good extent by providing a mechanism of "set off" for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.

But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive 30 trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.

Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax. In addition, although the burden of Central Sales Tax (CST) on inter-State movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed, 31 and a continuous chain of set-off from the original producer's point and service provider's point upto the retailer's level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With GST, the burden of CST will also be phased out.

Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax – a justified step forward.
 

Q 2: What is GST? How does it work?

Ans: As already mentioned in answer to Question 1, GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer's point and service provider's point upto the retailer's level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods 32 and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST 33 on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.

Stage of
Supply Chain
Purchase Value
Of Input
Value
Addition
Value at Which Supply Goods and Services Made to Next Stage Rate of
GST
GST on
Output
Input Tax
Credit
Net GST=GST on output-Input Tax Credit
Manufacturer 100 30 130 10% 13 10 13–10 = 3
Whole Seller 130 20 150 10% 15 13 15–13 = 2
Retailer 150 10 160 10% 16 15 16–15 = 1

 

Q 3: How can the burden of tax, in general, fall under GST?

Ans: As already mentioned in Answer to Question 1, the present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through "tax on tax" 34 which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer's point to the retailer's point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.

 

Q 4: How will GST benefit industry, trade and agriculture?

Ans: As mentioned in Answer to Question 3, the GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.

 

Q 5: How will GST benefit the exporters?

Ans: The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

 

Q 6: How will GST benefit the small entrepreneurs and small traders?

Ans: The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries.

 

Q 7: How will GST benefit the common consumers?

Ans: As already mentioned in Answer to Question 3, with the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer’s point to the retailer’s point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers.

 

Q 8: What are the salient features of the proposed GST model?

Ans: The salient features of the proposed model are as follows: 

  • Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.
  • The Central GST and the State GST would be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.
  • The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.
  • Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.
  • Cross utilisation of ITC between the Central GST and the State GST would, in general, not be allowed.
  • To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.
  • The administration of the Central GST would be with the Centre and for State GST with the States.
  • The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities.
  • Each taxpayer would be allotted a PANlinked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department.
  • Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.

 

Q 9: Why is Dual GST required?

Ans: India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

 

Q 10: How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

Ans: The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.

Illustration I: Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

 

Q 11: Which Central and State taxes are proposed to be subsumed under GST?

Ans: The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind: 

  • Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
  • Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
  • The subsumption should result in free flow of tax credit in intra and inter-State levels.
  • The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
  • Revenue fairness for both the Union and the States individually would need to be attempted.

On application of the above principles, the Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax: 

  1. Central Excise Duty
  2. Additional Excise Duties
  3. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
  4. Service Tax
  5. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  6. Special Additional Duty of Customs - 4% (SAD)
  7. Surcharges, and
  8. Cesses.

The following State taxes and levies would be, to begin with, subsumed under GST: 

  1. VAT / Sales tax
  2. Entertainment tax (unless it is levied by the local bodies).
  3. Luxury tax
  4. Taxes on lottery, betting and gambling.
  5. State Cesses and Surcharges in so far as they relate to supply of goods and services.
  6. Entry tax not in lieu of Octroi.

Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the foodgrain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies. A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter46 State has already been formulated by the Working Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST. 

 

Q 12: What is the rate structure proposed under GST?

Ans: The Empowered Committee has decided to adopt a two-rate structure –a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For upholding of special needs of each State as well as a balanced approach to federal flexibility, it is being discussed whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years. It is also being discussed whether the Government of India may adopt, to begin with, a similar approach towards exempted list under the CGST.

For CGST relating to goods, the States considered that the Government of India might also 47 have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services, there may be a single rate for both CGST and SGST.

The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.

 

Q 13: What is the concept of providing threshold exemption for GST?

Ans: Threshold exemption is built into a tax regime to keep small traders out of tax net. This has three-fold objectives:

  1. It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them.
  2. The compliance cost and compliance effort would be saved for such small traders.
  3. Small traders get relative advantage over large enterprises on account of lower tax incidence.

The present thresholds prescribed in different State VAT Acts below which VAT is not applicable varies 48 from State to State. A uniform State GST threshold across States is desirable and, therefore, as already mentioned in Answer to Question 6, it has been considered that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories might be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept Rs.1.5 Crore and the threshold for services should also be appropriately high. 

 

Q 14: What is the scope of composition and compounding scheme under GST?

Ans: As already mentioned in Answer to Question 6, a Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross 49 annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off.

 

Q 15: How will imports be taxed under GST?

Ans: With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

 

Q 16: Will cross utilization of credits between goods and services be allowed under GST regime?

Ans: Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

 

Q 17: How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

Ans: The Empowered Committee has accepted the recommendation for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.

The major advantages of IGST Model are: 

  1. Maintenance of uninterrupted ITC chain on inter-State transactions.
  2. No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
  3. No refund claim in exporting State, as ITC is used up while paying the tax.
  4. Self monitoring model.
  5. Level of computerisation is limited to inter-State dealers and Central and State Governments should be able to computerise their processes expeditiously.
  6. As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
  7. Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.

 

Q 18: Why does introduction of GST require a Constitutional Amendment?

Ans: The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services 52 and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.

As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure.

 

Q 19: How are the legislative steps being taken for CGST and SGST?

Ans: A Joint Working Group has recently been constituted (September 30, 2009) comprising of the officials of the Central and State Governments to prepare, in a time-bound manner a draft legislation for Constitutional Amendment.

 

Q 20: How will the rules for administration of CGST and SGST be framed?

Ans: The Joint Working Group, as mentioned above, has also been entrusted the task of preparing draft legislation for CGST, a suitable Model Legislation for SGST and rules and procedures for CGST and SGST. Simultaneous steps have also been initiated for drafting of legislation for IGST and rules and procedures. As a part of this exercise, the Working Group will also address to the issues of dispute resolution and advance ruling.

 

NB: Based on the FAQ published by the CBEC and the Directorate of Taxpayer Services.


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